COLUMN-Wyoming frack storm shows need for better regulation: Kemp

(John Kemp is a Reuters market analyst. The views expressed are
his own)

By John Kemp

LONDON Dec 9 Preliminary evidence that
hydraulic fracturing may have contaminated drinking water at a
small hamlet in Wyoming shows why the industry urgently needs to
embrace intelligent regulation and engage with safety officials
if North America's unconventional oil and gas reserves are to be
exploited fully.

Responding to complaints about foul-tasting water in local
wells at Pavillion (population 165), investigators found
concentrations of benzene and dissolved hydrocarbons near pits
used for storage of drilling waste, and dissolved chemicals and
methane associated with fracking in two wells drilled 200-300
metres down into the drinking water aquifer.

In a draft report released on Thursday, the Environmental
Protection Agency (EPA) concluded leaking waste had contaminated
the nearby shallow wells. The most likely explanation for
contamination at deeper levels was that methane and fracking
fluids migrated up from the fracking zone into the overlying
aquifer.

Like the battle over routing the proposed Keystone XL
pipeline, the issue of groundwater contamination in Pavillion
has a broader political importance that transcends the risk of
pollution in the local area.

Possible contamination at one tiny town in America's
least-populated state risks becoming the epicentre of a national
battle over fracking. Sensible exploitation of shale gas and oil
that could provide affordable energy, lower greenhouse emissions
and reduced dependence on imported energy all hang in the
balance.

SYMBOLIC BATTLE

EPA emphasised its findings are provisional and subject to
an independent scientific review to ensure a transparent and
rigorous process, after an opportunity for public comment.

The agency noted the findings are specific to Pavillion,
where gas-bearing formations are unusually shallow and close to
the drinking water aquifer. "Production conditions (are)
different from those in many other areas of the country."

It reiterated "natural gas plays a key role in our nation's
clean energy future, and the Obama administration is committed
to ensuring that the development of this vital resource occurs
safely and responsibly".

Nonetheless, the draft has ignited a predictable firestorm.
Fracking opponents have seized on it as evidence that the
technology is unsafe and should be heavily restricted or banned.

"No one can accurately say that there is 'no risk' where
fracking is concerned. This draft report makes obvious that
there are many factors at play, any one of which can go wrong.
Much stronger rules are needed to ensure that well construction
standards are stronger," the Natural Resources Defense Council
said.

The industry and some congressional Republicans backed
Encana Corp, owner of the gas field in Pavillion, when it
promptly hit back, blasting the report's methodology and
reliability.

"The synthetic chemicals could just as easily have come from
contamination when the EPA did their sampling or from how they
constructed their monitoring wells," said Doug Hock, a company
spokesman.

RISK MANAGEMENT

No form of energy is without risk. Conventional oil and gas
wells leak. Nuclear power stations melt down. Coal-fired power
stations emit lots of mercury and greenhouse gases. And wind
farms kill migrating birds and disfigure the landscape.

Like any other technology, fracking imposes its own costs
and benefits, but there is no reason to think it is inherently
any worse than conventional oil and gas production or other
forms of energy.

The first frack job dates back to 1947, and up to 95 percent
of all oil and gas wells drilled today are hydraulically
fractured, accounting for 43 percent of total U.S. oil
production and 67 percent of natural gas production, according
to a report prepared by the National Petroleum Council for the
U.S. Department of Energy.

From time to time, it is inevitable fractured wells will
contaminate drinking waters. There is no such thing as zero
risk. The challenge is to manage risks carefully and ensure
those affected are properly compensated when things go wrong.

In theory, it should be possible to design a system of
intelligent regulation that maximises the benefits from
unlocking unconventional gas and oil reserves while minimising
adverse impacts on local communities -- from groundwater
contamination, disposal of briny waste water, use of freshwater
supplies and the enormous increase in traffic.

In practice, this remains a depressingly distant goal. EPA,
environmental groups and the oil and gas industry must all share
the blame for inadequate fracking regulation and an increasingly
hostile political environment for a technology that promises to
transform the energy supply picture in coming decades -- but
only if voters allow it to be deployed more widely.

SOCIAL LICENCE TO OPERATE

To be fair, there are signs the industry recognises the
problem. The National Petroleum Council's landmark report
published in September 2011 was entitled, "Prudent Development:
Realising the Potential of North America's Abundant Natural Gas
and Oil Resources."

The report recognised "if these resources are to be
available and economic for development, continuous attention to
reducing risks is essential to ensure pollution prevention,
public safety and health, and environmental protection. These
outcomes are important in their own right, but also to enjoy
access to the resources for extraction."

This was an oblique way of saying the industry needs to
demonstrate social and environmental responsibility if it is to
obtain authorisation to drill. The authors admitted, "while most
natural gas and oil companies operate at a high environmental
performance level, some companies are not as far along".

Real changes in behaviour, not just PR campaigns, are
crucial. "Maintaining access to the resource does not depend on
changing public perception so much as earning public confidence
with excellent performance," the report said.

But the 111 pages devoted to operations and the environment
were notably short on concrete suggestions. The industry is
still reflexively hostile to government restrictions, even
though they can be an effective way to drive best practice and
solve the free-rider problem, when some operators cut corners
and create accidents that affect the industry as a whole.

Encana's furious response is typical of the combative,
no-holds barred, litigation-driven approach to any and all
evidence of environmental problems.

CONSTRUCTIVE ENGAGEMENT

On the other side, environment lobbyists tend to conflate
local pollution with broader concerns about global warming --
using the former to set impossibly high standards for oil, gas
and coal producers to drive them out of business in favour of
cleaner sources of energy such as wind and solar.

EPA also has often confused its technical role as a
pollution regulator with its broader one as a policy advocate
for carbon controls. As a result, it is seen by many in the oil
and gas industry as instinctively hostile and has forfeited its
credibility as a neutral umpire and regulator.

All sides have an urgent interest in better regulation.
While fracking was mostly about gas, it has been treated by
Congress and local lawmakers as primarily an environmental
issue. But as it moves into the oil patch, fracking is set to
become an issue of national energy security.

Environmental aspects will be much lower down Congress' list
of concerns. Now is the time for EPA and environmental groups to
compromise if they want a stronger regulatory framework. If they
refuse, they risk over-reaching and seeing their concerns swept
aside, which is what happened with cap-and-trade.

Better regulation is in the industry's interests too.
Fracking is only one major incident away from a clampdown.
Pavillion is too small and far away to create much of a
backlash. But a major scare near one of the big urban centres
could dramatically damage the industry's long-term prospects.

Many frack jobs at the moment are entrusted to small
independent operators who have an interest in cutting costs.
More effective engagement with regulators is part of the social
licence to operate the industry needs to remain viable and
secure access to an enormous source of cheap and useful energy.

ACCRA, Dec 9 Opposition leader Nana Akufo-Addo
won Ghana's national election, becoming president elect at the
third attempt and cementing the country's reputation as a
standard bearer of democracy in a region that has been blighted
by civil wars and coups.

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